Interest rates are a key measure of the price of money, but as the plural suggests, there is one more than just one interest rate. Today Jack dives deep into the interest rate structure with whiz kid Kemen Linsuain, known commonly as DC Analyst, who knows a thing or two about the many different kinds of risk-free rates that punctuate the financial system.
Kemen tells of the Federal Funds rate, which is the nominal overnight rate that the Federal Reserve controls, to other rates within the Fed’s remit such as the interest on reserve balances (IORB) and the reverse repo rate (RRP). Kemen and Jack then discuss overnight interest rates not within the Fed’s control such as the Secured Overnight Financing Rate (SOFR), the London Interbank Offered Rate (LIBOR), and then other rates and derivatives such as Treasury bill futures and swap rates.
Note: the vast majority of rates discussed in this conversation are short-term rates with minimal amounts of credit risk, and should not be confused with corporate bond yield, mortgage rates, or commercial banking rates. Lastly, Kemen shares his thoughts on crypto, and tells Jack about his latest venture into crypto as a content creator at Gauntlet.
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About Gauntlet: https://gauntlet.network/
DC Analyst blog: https://dcchartbook.substack.com/
Latest chartback from DC Analyst: https://dcchartbook.substack.com/p/chartbook-17
Follow Kemen on Twitter https://twitter.com/AnalystDC
Follow Gauntlet on Twitter https://twitter.com/gauntletnetwork
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Timestamps:
00:00 Introduction
01:08 Interest Rate Mayhem in 2022
14:19 Repo Markets
21:08. Curve Ad
22:14 Secured Overnight Financing Rate (SOFR)
37:03 Interest Rate Derivatives Market
41:39 LIBOR to SOFR Transition
50:14 Spread Between EFFR & SOFR (Effective Fed Funds Rate & Secured Overnight Financing Rate)
55:26 Overnight Index Swaps (OIS) and Forward Rate Agreements (FRA)
56:50 Negative Swap Spreads
59:48 Term Premium
01:02:12 Thoughts On The Fed
01:06:53 Crypto & DeFi
01:13:34 Where Did The (Crypto) Yield Come From?
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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